Walgreen's Feb. same-store sales bump not enough for Wall Street

With the seasonal flu at epidemic levels in most states, the largest U.S. drugstore chain said it filled more prescriptions for flu treatments than a year ago, but gave fewer flu vaccinations. It said a severe winter storm in the Midwest hurt its business because many customers refilled their prescriptions in late January, just before the bad weather hit.

Walgreen, based in Deerfield, Ill., said revenue at stores open at least a year rose 3.1 percent in February as more customers visited its locations than a year ago. But analysts surveyed by Thomson Reuters expected, on average, that revenue at those stores had risen 3.5 percent.

Revenue at stores open at least a year is a closely-watched gauge of retail health because it leaves out results from stores that have opened, closed or been acquired within the last year.

Walgreen said pharmacy revenue at stores opened at least a year rose 2.7 percent, below analysts' estimate of 3.1 percent. It said those stores filled 4.3 percent more prescriptions than a year ago because of greater demand for flu treatments like Tamiflu.

In February, the company administered about 100,000 of the shots, which protect against seasonal influenza and swine flu. The number of shots declined sharply from December and January, but it was still more than what Walgreen sold in February 2010. Walgreen said it has given 6.4 million flu vaccinations since mid-August. The company said last year that it was aiming to sell 15 million shots over the winter months, and while the flu season is not over, the company is far short of that goal.

Walgreen Chief Financial Officer Wade Miquelon said flu shot sales were strong last year because the 2009 swine flu epidemic was still fresh in the minds of consumers. That created greater demand for the seasonal vaccine, which was given separately from the swine flu vaccine. There was no repeat of the swine flu outbreak in 2010. Miquelon acknowledged that Walgreen is not likely to come close to its estimate of 15 million shots, but he said the company's market share has met its expectations, and that it has no financial risk from the shortfall.

Miquelon said U.S. health authorities expected around 140 million flu shots would be administered this season, but the total has not yet reached 100 million. January and February are considered the peak of the flu season.

The 2010-11 flu season has been a bit milder than normal, but the 2009-10 seasonal flu period was very mild by historic standards. Walgreen sold 7 million vaccinations during the 2009-10 flu season.

Revenue from sales of non-pharmacy, or front-end, items like food and cosmetics increased 3.8 percent. That included a gain of 0.7 percent from sales of beer and wine. The company started selling alcohol in late 2009 and now sells beer and wine at around 5,000 locations. The company said sales of Valentine's Day items like flowers and premium candy improved from last year. It said sales of other key products like over-the-counter medications, cough and cold treatments, beauty products, and pain and sleep drugs were all strong.

Analysts had forecast growth of 4.1 percent.

Overall, Walgreen said total revenue for February rose 7.8 percent to $5.73 billion from $5.32 billion a year earlier. Duane Reade stores contributed 2.7 percentage points to the increase. Walgreen bought the chain and its 258 New York City-area locations last spring for $623 million.

Walgreen opened 22 stores in February, acquired two and closed two. By the end of the month, it operated 7,689 stores in all 50 states, the District of Columbia, Puerto Rico and Guam. It also runs close to 500 worksite health centers, home care facilities, and specialty and mail service pharmacies.

February marked the end of Walgreen's fiscal second quarter. The company said its total sales grew 8.7 percent, to $18.46 billion from $16.99 billion a year ago. FactSet reports that analysts expected revenue of $18.35 billion on average.

Walgreen said sales at stores open at least a year grew 4 percent in the second quarter.

Walgreen shares rose 69 cents, or 1.65 percent, to close at $42.53 on Thursday.